Friday, October 26, 2012

What interest rates actually mean ! ! !


Martin Armstrong Now we come to the argument that if interest rates rise the stock market will decline. I am sorry. That is pure bullshit! Interest rates rise with bull markets and decline with bear markets. Look at Japan. Here is the Great Depression and the Fed kept raising interest rates as the market rallies. They then cut rates sharply as the market declined. So just where does this nonsense come from. The idea that the stocks will go down if the interest rates go up because it will cost more to borrow presumes everyone is leveraged. It also assumes the cost of business will rise lowering profits. The sad part of this reasoning is that it has been so prevalent. This is the reasoning that dominates the TV shows and spread the nonsense perpetually. Interest rates ALWAYS rise in bull market because people are investing. As the economy is expanding, people bid for capital because they see an opportunity. In Japan, interest rates are virtually zero. The market still does not rally because they see no opportunity. That is the key that is being ignored in this very shallow reasoning. All you have to do is actually demonstrate with evidence where this idea even comes from. Nobody can show the stock market rising with a bear market in interest rates. Impossible!

Barry Ritholtz on possible bear market beginning now

"All this week, I have been discussing why I thought we may be coming to an end of the cyclical bull market that began in March 2009: Listen to Ritholtz Sees “Major Cyclical Correction” from Tuesday morning, and watch this and this from Thursday. I have cut back on some major holdings, and raised our cash levels to 25% in the asset allocation model I manage. I removed half of our energy positions, eliminated our emerging markets exposure. The biggest move was cutting S&P500 exposure by 50%. A handful of clients who had outsized Apple exposure saw those positions reduced by a third. We maintain a heavy bias in long portfolios in health care and in consumer staples. I have no desire to reduce treasuries or munis, which will become a safe harbor if and when things get choppy. (I have NOT added inverse ETFs, but that is something I may consider in the future)."

Thursday, September 13, 2012

Gundlach Sees No Lost Decade for Stocks

Bloomberg "Gundlach, 52, is following Bill Gross, manager of the world’s largest bond fund, in flirting with stocks as the biggest bears wager that markets won’t fall back to their March 2009 lows. Gross’s Pacific Investment Management Co. three years ago started an expansion into equities in anticipation that their returns will beat those of bonds over coming years. Laurence D. Fink, chief executive officer of BlackRock Inc. (BLK), the world’s biggest money manager, has been urging investors to get out of cash and bond securities and put money into equities."

Friday, September 7, 2012

Trading 101 - The Mad Hedge Fund Trader


Trading 101. By The Mad Hedge Fund Trader on September 7, 2012 A number of readers have asked me why I’m not trading now. Since I put out my calls to sell Treasury bonds in August (click here for “The Great Treasury Bond Crash of 2010” ), and buy US stocks in September (click here for “My Equity Scenario for the Rest of 2010” ), I have mostly been sitting on my hands. I usually try to catch three or four trend changes a year, which might generate 50-100 trades, and often come in frenzied bursts. Since I am one of the greatest tightwads that ever walked the planet, I only like to buy positions when we are at the height of despair and despondency, and traders are raining off the Golden Gate Bridge. Similarly, I only like to sell when the markets are tripping on steroids and ecstasy, and are convinced that they can live forever. Some 99% of the time, the markets are in the middle, and there is nothing to do but deep research, looking for the next trade. That is the purpose of this letter. Over the four decades that I have been trading, I have learned a number of tried and true rules which have saved my bacon countless times. I will share them with you. 1) Don’t over trade. This is the number one reason why individual investors lose money. Look at your trades of the past year and apply the 90/10 rule. Dump the least profitable 90% and watch your performance skyrocket. Then aim for that 10%. Over trading is a great early retirement plan for your broker, not you. 2) Always use stops. Risk control is the measure of the good hedge fund trader. If you lose all your capital on the lemons, you can’t play when the great trades set up. Consider cash as having an option value. 3) Don’t forget to sell. Date, don’t marry you positions. Remember, pigs get slaughtered. Always leave the last 10% of a move for the next guy. 4) You don’t have to be a genius to play this game. If that was required, Wall Street would have run out of players a long time ago. If you employ risk control and stops, then you can be wrong 40% of the time, and still make a living. That’s little better than a coin toss. It you are wrong only 30% of the time, you can make millions. If you are wrong a scant 20% of the time, you are heading a trading desk at Goldman Sachs. If you are wrong a scant 10% of the time, you are running a $20 billion hedge fund that the public only hears about when you pay $100 million for a pickled shark at a modern art auction. If someone says they are never wrong, as is often claimed on the Internet, run a mile, because it is impossible. 5) This is hard work. Trading attracts a lot of wide eyed, na├»ve, but lazy people because it appears so easy from the outside. You buy a stock, watch it go up, and make money. How hard is that? The reality is that successful investing requires twice as much work as a normal job. The more research you put into a trade, the more comfortable you will become, and the more profitable it will be. That’s what this letter is for. 6) Don’t chase the market. If you do, it will turn back and bite you. Wait for it to come to you. If your miss the train, there will be another one along in hours, days, weeks, or months. Patience is a virtue. 7) When I put on a position, I calculate how much I am willing to lose to keep it. I then put a stop just below there. If I get triggered, I just walk away. Only enter a trade when the risk/reward is in your favor. You can start at 3:1. That means only risk a dollar to potentially make three. 8) Don’t confuse a bull market with brilliance. I am not smart, just old as dirt. 9) Tape this quote from the great economist and early hedge fund trader of the thirties, John Maynard Keynes, to you computer monitor: “Markets can remain illogical longer than you can remain solvent.” Hang around long enough, and you will see this proven time and again (ten year Treasuries at 2.4%?!). 10) Don’t believe the media. I know, I used to be one of them. Look for the hard data, the numbers, and you’ll see that often the talking heads, the paid industry apologists, and politicians don’t know what they are talking about (the Gulf oil spill will create a dead zone for decades?). 11) When you are running a long/short portfolio, 80% of your time is spent managing the shorts. If you don’t want to do the work, then cash beats a short any day of the week. 12) Sometimes the conventional wisdom is right. 13) Invest like a fundamentalist, execute like a technical analyst. 14) Use technical analysis only and you will buy every rally, sell every dip, and end up broke. That said, learn what an “outside reversal” is, and who the hell is Leonardo Fibonacci. 15) The simpler a market approach, the better it works. Everyone talks about “buy low and sell high”, but few actually do it. All black boxes eventually blow up, if they were ever there in the first place. 16) Markets are made up of people. Understand and anticipate how they think, and you will make a lot of money. 17) Understand what information is in the market and what isn’t and you will make more money. 18) Do the hard trade, the one that everyone tells you that you are “Mad” to do. If you add a position and then throw up afterwards, then you know you’ve done the right thing. This is why people started calling me “Mad” 40 years ago. 19) If you are trying to get out of a hole, the first thing to do is quit digging and throw away the shovel. A blank position sheet can be invigorating. 20) Making money in the market is an unnatural act. We humans are predators and hunters evolved to track game on the horizon of an African savanna. Modern humans are maybe 5 million years old, but civilization has been around for only 10,000 years. Our brains have not had time to make the adjustment. In the market, this means that if a stock has gone up, you believe it will continue. This is why market tops and bottoms see volume spikes. To make money, you have to go against these innate instincts. Some people are born with this ability, while others can only learn it through decades of training. I am in the latter group.

Tuesday, September 4, 2012

Super America ?

Here Comes the Next Peace Dividend. By The Mad Hedge Fund Trader on September 3, 2012 his in Newsletter When communications between intelligence agencies suddenly spike, as has recently been the case, I sit up and take note. Hey, you don’t think I talk to all of those generals because I like their snappy uniforms, do you? The word is that the despotic, authoritarian regime in Syria is on the verge of collapse, and is unlikely to survive more than a few more months. The body count is mounting, and the only question now is whether Bashar al-Assad will flee to an undisclosed African country or get dragged out of a storm drain to take a bullet in his head a la Gaddafy. It couldn’t happen to a nicer guy. The geopolitical implications for the U.S. are enormous. With Syria gone, Iran will be the last rogue state hostile to the U.S. in the Middle East, and it is teetering. The next and final domino of the Arab spring falls squarely at the gates of Tehran. Remember that the first real revolution in the region was the street uprising there in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards. The true death toll will never be known, but is thought to be in the thousands. The antigovernment sentiments that provided the spark never went away and they continue to percolate just under the surface. At the end of the day, the majority of the Persian population wants to join the tide of globalization. They want to buy IPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all. Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have failed to cater to these desires When Syria collapses, the Iranian “street” will figure out that if they spill enough of their own blood that regime change is possible and the revolution there will reignite. The Obama administration is now pulling out all the stops to accelerate the process. Secretary of State Hillary Clinton has stiffened her rhetoric and worked tirelessly behind the scenes to bring about the collapse of the Iranian economy. The oil embargo she organized is steadily tightening the noose, with heating oil and gasoline becoming hard to obtain. Yes, Russia and China are doing what they can to slow the process, but conducting international trade through the back door is expensive, and prices are rocketing. The unemployment rate is 25%. Iranian banks are about to get kicked out of the SWIFT international settlements system, which would be a deathblow to their trade. Let’s see how docile these people remain when the air conditioning quits running this summer because of power shortages. Iran is a rotten piece of fruit ready to fall off its own accord and go splat. Hillary is doing everything she can to shake the tree. No military action of any kind is required on America’s part. The geopolitical payoff of such an event for the U.S. would be almost incalculable. A successful revolution will almost certainly produce a secular, pro-Western regime whose first priority will be to rejoin the international community and use its oil wealth to rebuild an economy now in tatters. Oil will lose its risk premium, now believed by the oil industry to be $30 a barrel. A looming supply could cause prices to drop to as low as $30 a barrel. This would amount to a gigantic $1.66 trillion tax cut for not just the U.S., but the entire global economy as well (87 million barrels a day X 365 days a year X $100 dollars a barrel X 50%). Almost all funding of terrorist organizations will immediately dry up. I might point out here that this has always been the oil industry’s worst nightmare. At that point, the US will be without enemies, save for North Korea, and even the Hermit Kingdom could change with a new leader in place. A long Pax Americana will settle over the planet. The implications for the financial markets will be enormous. The U.S. will reap a peace dividend as large, or larger, than the one we enjoyed after the fall of the Soviet Union in 1992. As you may recall, that black swan caused the Dow Average to soar from 2,000 to 10,000 in less than eight years, also partly fueled by the technology boom. A collapse in oil imports will cause the U.S. dollar to rocket. An immediate halving of our defense spending to $400 billion or less and burgeoning new tax revenues would cause the budget deficit to collapse. With the U.S. government gone as a major new borrower, interest rates across the yield curve will fall further. A peace dividend will also cause U.S. GDP growth to reaccelerate from 2% to 4%. Risk assets of every description will soar to multiples of their current levels, including stocks, junk bonds, commodities, precious metals, and food. The Dow will soar to 20,000, the Euro collapses to parity, gold rockets to $2,300 an ounce, silver flies to $100 an ounce, copper leaps to $6 a pound, and corn recovers $8 a bushel. The 60-year bull market in bonds ends. Some 1 million of the armed forces will get dumped on the job market as our manpower requirements shrink to peacetime levels. But a strong economy should be able to soak these well-trained and motivated people right up. We will enter a new Golden Age, not just at home, but for civilization as a whole. Wait, you ask, what if Iran develops an atomic bomb and holds the U.S. at bay? Don’t worry. There is no Iranian nuclear device. There is no real Iranian nuclear program. The entire concept is an invention of Israeli and American intelligence agencies as a means to put pressure on the regime. The head of the miniscule effort they have was assassinated by Israeli intelligence two weeks ago (a magnetic bomb, placed on a moving car, by a team on a motorcycle, nice!). If Iran had anything substantial in the works, the Israeli planes would have taken off a long time ago. There is no plan to close the Straits of Hormuz, either. The training exercises in small rubber boats we have seen are done for CNN’s benefit, and comprise no credible threat. I am a firm believer in the wisdom of markets, and that the marketplace becomes aware of major history changing events well before we mere individual mortals do. The Dow began a 25-year bull market the day after American forces defeated the Japanese in the Battle of Midway in May of 1942, even though the true outcome of that confrontation was kept top secret for years. If the collapse of Iran was going to lead to a global multi-decade economic boom and the end of history, how would the stock markets behave now? They would rise virtually every day, led by the technology sector, offering no substantial pullbacks for latecomers to get in. That is exactly what they have been doing since mid-December. If you think I’m “Mad”, just check out Apple’s chart below.

Thursday, August 30, 2012

Martin Armstrong- Debt is destroying everything

Indeed, it is the debt that is now destroying all liberty. There will not be HYPERINFLATION for the bankers are in full control of Congress and the Fed. They are forcing austerity and higher taxes. The excuse is put forth that government will collapse if they cannot pay their debts. The fact that nearly 70% of the total national debt is past interest payments, we are in the last throes of this very dangerous debt implosion. The problem we face, it is EVERY country in Europe including Germany and across the globe to Japan. This is simply the way things are. The bankers are advising against HYPERINFLATION because they do not want funny money. So we have to be concerned about STAGFLATION, rising costs with collapsing economic growth. We are living so far beyond our income that we are living completely unconnected to any productive capacity. The debt can no longer be paid off. It is beyond several generations. Charles Dickens wrote in Little Dorrit that “[Credit is a system whereby] a person who can't pay, gets another person who can't pay, to guarantee that he can pay.” Back in the good old days when the national debt was just $1 trillion instead of $15, President Ronald Reagan made it clear: “We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion-dollar debt because we spend too much.” History has proven he was right!

Tuesday, August 7, 2012

The carpet baggers are coming for us

Martin Armstrong: We are on the verge of a systemic global meltdown and if you do not understand what we face, you will lose your shirt, pants, wife, kids, and the farm. This whole nonsense of HYPERINFLATION PRESUMES government will just continue to print forever. They do not even address the reality that the bondholders are the very people who are demanding to raise taxes and impose austerity to ensure what they are paid back and not with devalued funny money. They warn government that their future borrowing capacity is at stake and unless they do as the bankers say, the world will end for they will no longer be able to borrow continuously. This is the inherent check against HYPERINFLATION that is ignored by all this hype. The average person is being squeeze both in taxes and in interest rates. The banks have positioned themselves as the necessary evil and eliminating Glass-Steagall was critical to their agenda. They can now dominate the financial world pushing more and more debt controlling government and keeping spreads between cost of funds and lending rates at record highs.

On Indian Finance Minister- PC Chidambaram- screw savers to help yourself !

PC's comments are useless. He knows MoF does not control RBI. RBI will not let interest rates fall with such high inflation otherwise from stagflation we will get closer to hyperinflation (?). The wealth disparities will go through the roof. Reckless overambitious fat cats borrowers will benefit. Conservative savers will ofcourse get screwed. It is very regrettable that PC can not come up with any new ideas other than the same old rut. It looks like the whole lesson of US has not filtered down to these chaps !!! Their debt is already downgraded. What will you do when every one is hugely indebted and ET THERE IS NO GROWTH ? The govt borrowing costs will go thru the roof (as no one will lend beyond a limit) and the govt will default (because of high interest payments). Why can't he focus on rapid liquidation of defaulted cos instead?

Sunday, August 5, 2012

Judiciary - for whose protection ?

The Indian judiciary will never takes action in time till some 70 year old man goes on a hunger strike and lacs of people come on the roads. As soon as things cool down they too will cool their heels. The Bhopal Gas tradegy victims after 30 years of a court fight got a princely sum ……of few dollars, awarded by the courts ! Any guesses as to how much the bast%$d lawyers got PER HOUR fighting this case? The Italians who shot Indian fishermen were asked to pay peanuts by the court to release their ship. Readers are nuts if they expect justice. Its your own job to take care of yourself. Madoff too was let to operate for SEVERAL years. Man Financial CEO is still moving freely after stealing hundreds of millions off customer dollars. This is like HDFC Securities punting money, loosing and taking customer’s money (as an example only)! Peregrine did the same. Rajat Gupta and Anil Kumar too were cheating on the system. Several are still in the open. So this is a WORLDWIDE problem. The Indian judiciary is only for lawyers to make money. They will NEVER give justice. What is the use of justice after 15-30 years of waiting? The defendant might die by then.

Tuesday, July 24, 2012

USA versus China

Recently MIT gave innovation awards in India. Guess who owned the innovations? American companies with Indian employees ! So the innovations will always be owned by Americans where ever there are. Look at the quality of American companies IPOs versus Chinese companies IPOs. There is a marked difference in the quality. The Chinese Communist Party members, as the world is beginning to realize, are the biggest crooks and cronies on the planet, looting their own country on a magnitude never seen in human history! To complicate matters, they have no law (much like the Russians). Its just another mafia country. Your business can be stolen at gun point in both the countries. To make matters worse, the Chinese speak like they have genuine ill-will towards Americans and they are totally immersed in arrogance. As the tide turns, may God forgive them for their arrogance. Their stupidity on increasing military spending for false nationalistic notions and spreading nuke techology foolishly to rogue countries will haunt no one else but themselves. Does Pakistan not haunt America? Did Iraq not haunt America? And whose allies were they? History will repeat for the Chinese. As long as America is a capitalist country (regardless of democracy), it stands a good chance to stay on top. But alas....what is the good of all the power and wealth when the richest country has citizens who are gun slinging psychos shooting in movie theaters and public schools ? When New Orleans was in trouble, American citizens proved that they do not need Chinese/ religious bigots as enemies. They suffice among themselves as THE most dangerous pyschos. When Thailand had a flood in the same year (I think), their citizens proved what true wealth really is. They helped each other. In America, they loot and rape minors when people are in distress! America needs to do some introspection. Otherwise Bhutan beats both US and China in true wealth. Atleast your 6 year old daughter can go to watch her Batman movies and come back home alive.

Thursday, July 12, 2012

On democracy

In a recent interview, Hans-Hermann Hoppe — the author of the forthcoming The Great Fiction: Property, Economy, Society and the Politics of Decline — explained: “... it is democracy that is causally responsible for the fatal conditions afflicting us now. The number of productive people is constantly decreasing, and the number of people parasitically consuming the income and wealth of this dwindling number of productive people is increasing steadily. This can’t work in the long run.” Democracy is just a wealth-distribution (and ultimately wealth- destruction) scheme that pits the taxpayers vs. the tax eaters. In the case of Europe, Germany and the Netherlands produce and save, while Greece, Spain, Portugal and the rest consume. Eventually, a bankruptcy will bring to light the truth about democracy, which, Hoppe explains: “...is nothing more than an especially insidious form of communism, and that the politicians who have wrought this immoral and economic madness and who have thereby enriched themselves personally (never, of course, being liable for the damages they have caused!), are nothing more than a despicable bunch of communist crooks.” Democracy, simply, in Hoppe’s view, decivilizes society. Civilized people save and plan so as to take care of themselves and their families in the present and future. Fiscal conservatism and prudence is valued in a nondemocratic society, as are sound ethics. Democracy undoes the tendency for people to act cooperatively and responsibly. Politicians constantly look to appease voters with more benefits to care for them from cradle to grave, so as to win the next election. At the same time, the bureaucracy that hands out the benefits grows larger and larger and is unaccountable to anyone — especially voters. As the old saying goes, “No matter who wins, the government is always elected.” In order to distribute these benefits, the government must violate property rights. Government produces nothing; it must take from one group in order to give to another. Hoppe makes the case that individuals are powerless to protect themselves from government theft and view taxation as they would natural disasters. This alters the behavior of producers, who will tend to be less future-oriented, given that government is constantly stealing from them. This continuous theft, overtly through taxation and subversively by way of inflation, raises the producers’ time preferences, and they divert resources from producing future goods to present consumption. Over time, democracy leads to a lower level of capital being accumulated. With less capital, society is not only poorer, but less civilized. In Democracy: The God That Failed, Hoppe explains: “if government property-rights violations take their course and grow extensive enough, the natural tendency of humanity to build an expanding stock of capital and durable consumer goods and to become increasingly more farsighted and provide for evermore distant goals may not only come to a standstill, but may be reversed by a tendency toward decivilization: Formerly provident providers will be turned into drunks or daydreamers, adults into children, civilized men into barbarians and producers into criminals.” So what has kept this destructive force — democracy — alive for so long? Ironically, capitalism. Hoppe responds: “That the whole democratic house of cards has not yet completely collapsed speaks volumes about the still tremendous creative power of capitalism, even in the face of ever-increasing governmental strangulation. And this fact also allows us to conjecture about what economic ‘miracles’ would be possible if we had unimpeded capitalism liberated from such parasitism.” So many people mistakenly tie democracy and capitalism together, when in fact democracy keeps capitalism from making all producers prosperous. Laissez-faire is not a matter of electing the right person; it means simply “leave it alone,” something politicians cannot seem to do.

Monday, July 2, 2012

Deflation in progress...the healing

Livemint: Prices of Raw Goods Plunge on Slowdown Slump renews debate over longevity of the commodity super-cycle; glut of raw materials around the world The sudden economic downdraught has caused one of the biggest and broadest declines in commodities prices since the financial crisis, surprising producers and creating a glut of raw materials around the world. From crude oil to copper to cotton, prices were down an average of 9% since late February, based on the Dow Jones-UBS Commodity Index. Crude oil prices, well above $100 a barrel just two months ago, now fetch $84.96 on the New York Mercantile Exchange. Cotton prices have tumbled 22% so far this year. The benchmark steel price in the US for hot-rolled coil is down 13% in two months, according to commodity price reporting firm Platts. The declines mark a sharp turnaround from just a few months ago, when economists were optimistic about the prospects for a US economic recovery, China still seemed to be humming, and commodity supplies were generally tight.

India versus China

India is a democracy. It does not have a ponzi / mafia political party which focuses on looting the nation. Check out the number of billionaires in the Communist Party of China. Patents are relatively much safer in India. The press is free and vibrant. There is no "mad" overcapacity in anything like empty/ ghost buildings/ cities and the like. The Indian judiciary is slow but generally very fair. India does not have problems associated with the one child policy. Air pollution in Indian cities is probably lower. Most importantly- the fundamentals of the Indian economy in few ways are better than the Chinese. India does not control its currency artificially. There are fewer Indians trying to run out of India than Chinese trying to run out of China. Infact most Indians can take foreign currency outside the country upto a limit. But few Indians do it. Most Chinese will smuggle their moneys out buying fancy properties in Mayfair/ Kensington in London. India has a long way to go..... inspite of the government (if you know what I mean).

Saturday, June 23, 2012

Martin Armstrong - How do empires die ?

Sorry, but you can die in a desert from extreme heat or freeze to death in Antarctica from extreme cold. To survive, we need a temperate client to live within. DEFLATION or INFLATION can kill an economy. Empires do not die by HYPERINFLATION – that is reserved for the fringe. When an empire dies, it historically has ALWAYS been by DEFLATION. How. Real wealth is driven from the ABOVEGROUND economy into the UNDERGROUND economy where it is hoarded and tucked away. This is why we find hoards of Roman coins. This reduces the VELOCITY of money and commerce is reduced. This is ALWAYS AND WITHOUT EXCEPTION how empires die. This is why there was scrip issued in the United States during the Great Depression. The VELOCITY of money came to a halt. The British Empire did not die of HYPERINFLATION. The pound collapsed in value. It did not inflate into oblivion. The British Empire simply rolled over and died. The decline of the sterling silver penny of England was no different a path than the decline and fall of Rome. The United States will follow the same path and that means there is a risk that it will break apart into regional sections ONLY AFTER the dollar is hit very hard following Europe and then Japan. This is fairly simple. All the hyperinflationists can point to is Germany and Zimbabwe. They can offer not a single historical example of how HYPERINFLATION ever destroyed any empire. I have no vested interest in HYPERINFLATION or DEFLATION. I simply do the research and let the evidence speak for itself. This is just not a personal opinion issue in the least. Both will lead to the same end result – the death of an empire. Why must there be an argument over such nonsense. It is DEAD! How Empires Die. The question how do empires die is absolutely critical to surviving the Sovereign Debt Crisis. You can buy gold and listen to this nonsense about HYPERINFLATION and $50,000 an ounce while everything else is worth shit. You will be right insofar as in the end the empire will die. However, you may not make it to the finish line with this myopic view of the world. The very word “suburbium" is what the Romans called it. People left the cities fleeing taxes. The population of Rome itself just collapsed. No city ever matched that size again until the Victorian era in London. This is how empires die. The cost of government always rises oppressing the private sector since the public sector is like a drunk – it just consumes and has the hand out claiming he needs money to eat instead of drink. The people either leave or revolt in their struggle to cope with the persistent unpredictable demands of government that historically NEVER lives within its means. The Goldbugs are not even in the right church forget the right pew. It has never been this battle against what is money or trying to create a “gold standard" that has never survived the folly of man because everything fluctuates in value – it has always been the perpetual battle against the spendthrift ways of those in power who squanders the resources of the people and assumes authority to extort from them whatever they desire at the moment. It matters not what period we look at, the end result NEVER changes. Most of the leading German cities freed themselves in the second half of the 13thcentury from all forms of subordination to territorial princes, yet they were not as autonomous as the independence republics enjoyed by the Italians. This movement towards autonomy was facilitated by various princes' urgent financial needs. The great episcopal cities of Cologne, Augsburg and Mainz became free cities. In the struggle for autonomy, possession of financial resources was a decisive factor in victory. Impoverishment, nonetheless, facilitated the return of the lords because of the failure to manage the fiscal spending of the city.

Wednesday, May 30, 2012

All commodities will rise- Martin Armstrong

All commodities will rise. This is inevitable. The idea that somehow Freegold will emerge as a solution is just absurd. Governments will
NEVER give up power until they are forced to do so. Gold will be reduced to the barter system and its value will rise largely as an alternative to ELECTRONIC money. If you had $1 billion, and you wanted to withdraw it from a bank, the best that could happen is there will be a cashiers check. Even that is highly unlikely. The only way to withdraw that much money is by electronic transfer. So lets get real. There is no role for gold to play in the future and the whole idea of a fixed exchange rate has been attempted many times and it has always failed. You cannot fix the value of money without fixing everything else from wages to stock values. That is why all fixed exchange rates systems have collapsed after brief periods of time.

What we do face is a rise in prices due to the
Sovereign Debt Crisis. Nothing will take place until we begin to see pressure put on the debt markets. That has not quite appears outside of Greece and Southern Europe. The politics is already starting to shift toward inflation rather than austerity. The only check against this trend is capital. It is not FREEGOLD we should be concerned about, but free capital in general. Once capital begins to shift as it did in 1925 away from debt and toward the free markets, then we will see interest rates start to rise. As that takes place, the debt structure of government will explode. 7

Indeed, when we look at wheat we have the spike high in 2008. This followed the low in 1999. The computer forecast was spot on for the last 12 years. What certainly appears to be on the horizon is a rather significant breakout to the upside. Here is a chart of wheat showing the
Breakout Line from the 1932 low. We exceeded that briefly during the 1974 rally. We exceeded that line for the first time closing above it at the end of 2006. That led to the spike rally into 2007. We exceeded that Breakout Line briefly in 2011 and then the market turned down. This was still quite critical for it indicates that this market is preparing for a blast to the upside.

Looking at wheat indicates that what we are facing is by
NO means something related ONLY to gold. When we look at the entire landscape of markets, we can see the true scope of the Sovereign Debt Crisis that we face. For the distinction between a wholesale decline in a currency value and a capital concentration that creates a bubble economy, is rather simple. The former is witnessed in all markets whereas the latter is concentrated within a single market such as the Mortgage Pools in 2007, the Internet Bubble in 2000, Russia in 1998, Japan in 1989, the dollar in 1985, gold 1980, and the agricultural markets in 1974.

Consequently, what we are looking at is a wholesale advance in the commodity sector and this implies a very broad based decline in the currency purchasing power rather than a single isolated capital concentration. Thus, this is not about just gold, it is about a systemic decline in the way Western government has functioned since World War II. The 1989 turning point was the death Nell for Communism. This is now our turn with unfunded socialism. So indeed repent for the time is near. Just not for the reason a lot of people have been saying. 8

Tuesday, March 20, 2012

What Would Graham Say About Goldman?

WSJ-

We were reminded, since the Greg Smith/Goldman Sachs brouhaha has still not died down, that Benjamin Graham had quite a bit to say about conflicts of interest in Chapter 21 of the 1940 edition of his great book Security Analysis. Remember, as you read it, that Graham always chose every word he used with the utmost care:

“An institution with securities of its own to sell cannot be looked to for entirely impartial guidance. However ethical its aims may be, the compelling force of self-interest is bound to affect its judgment. This is particularly true when the advice is supplied by a bond salesman whose livelihood depends upon persuading his customers to buy the securities that his firm has ‘on its shelves’….

“[T]he sale of securities is not a profession but a business, and is necessarily carried on as such. While in the typical transaction it is to the advantage of the seller to give the buyer full value and satisfaction, conditions may arise in which their interests are in serious conflict. Hence it is impracticable, and in a sense unfair, to require investment banking houses to act as impartial advisers to buyers of securities; and, broadly speaking, it is unwise for the investor to rely primarily upon the advice of sellers of securities.”

So far as I can tell, this passage didn’t appear in the first edition of the book, published in 1934. It seems plausible that Graham added this commentary in 1940, seven years into tougher banking regulation under the Glass-Steagall Act, in order to remind his readers that they shouldn’t let ostensibly tighter rules lull them into a sense of complacency.

To this day, Wall Street firms like to assert that their “Chinese walls” and detailed disclosures cure their conflicts of interest. As Graham knew and as all investors should remember, procedures and disclosures don’t cure conflicts; they merely describe them.

Revising or expanding these conflict-of-interest policies won’t solve the problem. “The compelling force of self-interest” will continue to taint the judgment of those who give financial advice until firms finally, somehow, concede that the only way to cure conflicts of interest is to avoid them in the first place. But that wasn’t part of their business model in Graham’s day, and it isn’t in our day either.

Putting on a white hat can’t keep your hand from turning red whenever it goes into the cookie jar.

Jesse Livermore quotes



Jesse Livermore quotes…many nuggets of wisdom. Print this and read it over and over (bold

emphasis is ours).

It is what people actually did in the stock market that counted – not what they said they were

going to do.

Livermore studied his mistakes objectively…”
the only way you get a real education in the market

is to invest cash, track your trade, and study your mistakes
…It is emotionally difficult to review

your mistakes, since the speculator must wade through his own bad trades and blunders. And these

are not simple blunders; these are blunders that cost money. Anyone who has lost money by

investing poorly knows how difficult it is to reexamine what occurred.
The examination of a losing

trade is tortuous but necessary to ensure that it will not happen again
.”

Livermore was brutal in self-analysis. He told his sons his conclusions: “Successful trading is always

an emotional battle for the speculator, not an intelligent battle.”…He knew that his biggest enemy

was his own emotions.

“We are the sum total of our experience.” When asked what makes a good stock speculator,

Livermore replied “…it’s an aptitude for the game, a stomach for the ride, and the ability to see what

is happening without emotion. The ability to make observations that others don’t and a good

memory….Only speculate if you can make it a full-time job. Don’t take tips of any kind, no matter

where they come from. Don’t worry about catching tops or bottoms, that’s fools play.
Keep the

number of stocks you own to a controllable number
. It’s hard to herd cats, and it’s hard to track

a lot of securities.
Take your losses quickly and don’t brood about them. Try to learn from them

but mistakes are as inevitable as death. And only make a big move, a real big plunge, when a

majority of factors are in your favor….
every once in a while you must go to cash, take a break,

take a vacation.
Don’t try to play the market all the time. It can’t be done, too tough on the

emotions
.”

The unsuccessful investor is best friends with hope, and hope skips along life’s path hand in hand

with greed when it comes to the stock market. Once a stock trade is entered, hope springs to life. It

is human nature to be positive, to hope for the best. Hope is an important survival technique. But

hope, like its stock market cousin’s ignorance, greed, and fear, distorts reason. See the stock

market only deals in facts, in reality, in reason, and
the stock market is never wrong. Traders are

wrong
. Like the spinning of a roulette wheel, the little black ball tells the final outcome, not greed,

fear or hope. The result is objective and final, with no appeal.

I believe that the public wants to be led, to be instructed, to be told what to do. They want

reassurance. They will always move en masse, a mob, a herd, a group, because people want the

safety of human company. They are afraid to stand alone because they want to be safely included

within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of

contrary opinion.

First, do not be invested in the market all the time.
There are many times when I have been

completely in cash, especially when I was unsure of the direction of the market and waiting

for a confirmation of the next move
....Second, it is the change in the major trend that hurts most

speculators.

The last gasp of heavy volume provides a great opportunity to sell out any illiquid large holdings. I

knew it was foolish to ever catch the tops or the bottoms of the moves. It is always better to sell

large holdings into an advancing market when there is plenty of volume. The same is true on the

short side; you are best to cover the short position after a steep, fast decline.

…the market will often go contrary to what speculators have predicted. At these times, successful

speculators must abandon their predictions and follow the action of the market.
Prudent

speculators never argue with the tape
. Markets are never wrong, but opinions often are.

All through time, people have basically acted the same way in the market as a result of greed, fear,

ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.

Every stock is like a human being: it has a personality, a distinctive personality. Aggressive,

reserved, hyper, high-strung, volatile, boring, direct, logical, predictable, unpredictable. I often

studied stocks like I would study people; after a while their reactions to certain circumstances

become more predictable.

I believe that having the discipline to follow your rules is essential.
Without specific, clear, and

tested rules, speculators do not have any real chance of success
. Why? Because speculators

without a plan are like a general without a strategy, and therefore without an actionable battle plan.

Speculators without a single clear plan can only act and react, act and react, to the slings and

arrows of stock market misfortune, until they are defeated.

If you can’t sleep at night because of your stock market position, then you have gone too far. If this

is the case, then sell your position down to the sleeping level.

I believe that anyone who is intelligent, conscientious, and willing to put in the necessary

time can be successful on Wall Street. As long as they realize the market is a business like

any other business, they have a good chance to prosper.

Remember, it [the market] is designed to fool most of the people most of the time.

I have always fully understood that I am not the only one who knows that the stock market is the

world’s biggest gold mine, sitting at the foot of the island of Manhattan. A gold mine that opens its

doors every day and invites anyone and everyone in to plump its depths and leave with

wheelbarrows full of gold bars, if they can – and I have done it. The gold mine is there all right, and

every day somebody plumps its depths, and when the bell rings at the end of the day they have

gone from pauper to prince, or gone from prince to supreme potentate, or gone stony broke. And it’s

always there waiting.

I believe that uncontrolled basic emotions are the true and deadly enemy of the speculator;

that hope, fear, and greed are always present, sitting on the edge of the psyche, waiting on

the sidelines, waiting to jump into the action, plow into the game.

These words [bullish, bearish] are not in my vocabulary because I believe they can create an

emotional mind-set of a specific market direction in a speculator’s mind.

I never try to predict or anticipate. I only try to react to what the market is telling me by its

behavior.

I believe there are no good stocks or bad stocks; there are only money making stocks. So

there is no good direction to trade, short or long; there is only the money-making way to

trade.

Greed, fear, impatience, and hope will all fight for mental dominance over the speculator.

My satisfaction always came from beating the market, solving the puzzle. The money was the

reward, but it was not the main reason I loved the market. The stock market is the greatest, most

complex puzzle ever invented – and it pays the biggest jackpot….it was never the money that drove

me. It was the game, solving the puzzle, beating the market that had confused and confounded the

greatest minds in history. For me, that passion, the juice, the exhilaration was in beating the game, a

game that was a living dynamic riddle, a conundrum to everyone who speculated on Wall Street.

Always remember; you can win a horse race, but you can’t beat the races. You can win on a stock,

but you cannot beat Wall Street all the time. Nobody can.

I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a

profit and I sold it out.
Of all the speculative blunders there are few greater than trying to

average a losing game. Always sell what shows you a loss and keep what shows you a

profit
.

If all I have is ten dollars and I risk it, I am much braver than when I risk a million if I have another

million salted away.

I’ve got friends, of course, but my business has always been the same – a one-man affair. That is

why I have always played a lone hand.

What beat me was not having brains enough to stick to my own game – that is,
to play the market

only when I was satisfied that precedents favored my play
. There is the plain fool, who does

the wrong thing at all times everywhere, but
there is also the Wall Street fool, who thinks he

must trade all the time. No man can have adequate reasons for buying or selling stocks daily

– or sufficient knowledge to make his play an intelligent play.

For one thing, the automatic closing out of your trade when the margin reached the exhaustion point

was the best kind of stop-loss order.

The game taught me the game.
And it didn’t spare me rod while teaching.

If somebody had told me my method would not work I nevertheless would have tried it out to make

sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money.

And I am only right when I make money. That is speculating.

Early that fall I not only was cleaned out again but I was so sick of the game I could no longer beat

that I decided to leave New York and try something else some other place. I had been trading since

my fourteenth year. I had made my first thousand dollars when I was a kid at fifteen and my first ten

thousand before I was twenty one. I had made and lost a ten thousand stake more than once. In

New York I had made thousands and lost them. I got up to fifty thousand and two days later that

went. I had no other business and knew no other game. After several years I was back where I

began. No-worse, for I had acquired habits and a style of living that required money; though that

part didn’t bother me as much as being wrong so consistently.

Don’t misunderstand me. I never allowed pleasure to interfere with business. When I lost it was

always because I was wrong and not because I was suffering from dissipation or excesses. There

were never any shattered nerves or rum-shaken limbs to spoil my game. I couldn’t afford anything

that kept me from feeling physically and mentally fit. Even now I am usually in bed by ten. As a

young man I never kept late hours, because I could not do business properly on insufficient sleep.

For instance, I had been bullish from the very start of a bull market, and I had backed my opinion by

buying stocks. An advance followed, as I had clearly foreseen. So far, all very well. But what else

did I do? Why, I listened to the elder statesmen and curbed my youthful impetuousness. I made up

my mind to be wise carefully, conservatively. Everybody knew that the way to do that was to take

profits and buy back your stocks on reactions. And that is precisely what I did, or rather what I tried

to do; for I often took profits and waited for a reaction that never came. And I saw my stock go

kitting up ten points more and I sitting there with my four-point profit safe in my conservative pocket.

They say you never go broke taking profits. No, you don’t. But neither do you grow rich

taking a four-point profit in a bull market.

I think it was a long step forward in my trading education when I realized at last that when old Mr.

Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to

tell them that
the big money was not in the individual fluctuations but in the main movementsthat

is, not in reading the tape but in sizing up the entire market and its trend.

The market does not beat them. They beat themselves, because though they have brains they

cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only
the

courage of his convictions but also the intelligence and patience to sit tight
.

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the

fluctuations.
In a bull market the game is to buy and hold until you believe the bull market is

near its end
.

Remember that stocks are never too high for you to begin buying or too low to begin selling.

Suppose he buys his first hundred, and that promptly shows him a loss. Why should he go to work

and get more stock? He ought to see at once that he is in the wrong; at least temporarily.

The Union Pacific incident in Saratoga in the summer of 1906 made me
more independent than

ever of tips and talk - that is, of the opinions, surmises and suspicions of other people,

however friendly or however able they might be personally
. Events, not vanity, proved for me

that I could read the tape more accurately than most of the people about me. I also was better

equipped than the average customer of Harding Brothers in that
I was utterly free from

speculative prejudices. The bear side doesn’t appeal any more than the bull side, or vice

versa.
My one steadfast prejudice is against being wrong.

When I am long of stocks it is because my reading of conditions has made me bullish. But

you find many people, reputed to be intelligent, who are bullish because they have stocks. I

do not allow my possessions - or my prepossessions either – to do any thinking for me. That

is why I repeat that I never argue with the tape.

Obviously the thing to do was to be bullish in a bull market and bearish in a bear market.

I came to learn that even when one is properly bearish at the very beginning of a bear market

it is not well to begin selling in bulk until there is no danger of the engine back-firing.

Of course, if a man is both wise and lucky, he will not make the same mistake twice. But he will

make any one of ten thousand brothers or cousins of the original. The Mistake family is so large

that there is always one of them around when you want to see what you can do in the fool-play line.

Losing money is the least of my troubles.
A loss never troubles me after I take it. I forget it

overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book

and to the soul.

“I can’t sleep” answered the nervous one.

“Why not?” asked the friend.

“I am carrying so much cotton that I can’t sleep thinking about. It is wearing me out. What can I do?”

“Sell down to the sleeping point”, answered the friend.

He will risk half his fortune in the stock market with less reflection that he devotes to the selection of

a medium-priced automobile.

It sounds very easy to say that all you have to do is to watch the tape, establish your resistance

points and be ready to trade along the line of least resistance as soon as you have determined it.

But in actual practice
a man has to guard against many things, and most of all against himself

– that is, against human nature.

A speculator must concern himself with making money out of the market and not with

insisting that the tape must agree with him. Never argue with it or ask for reasons or

explanations.

He should accumulate his line on the way up. Let him buy one-fifth of his full line. If that does not

show him a profit he must not increase his holdings because he has obviously begun wrong; he is

wrong temporarily and there is no profit in being wrong at any time.

Fear keeps you from making as much money as you ought to.

The game does not change and neither does human nature.

After I paid off my debts in full I put a pretty fair amount in to annuities
. I made up my mind I

wasn’t going to be strapped and uncomfortable and minus a stake ever again.

Among the hazards of speculation the happening of the unexpected – I might even say of the

unacceptable – ranks high.

I trade on my own information and follow my own methods.

He was
utterly fearless but never reckless. He could, and did, turn on a twinkling if he found he

was wrong.

At the same time I realized that the best of all tipsters, the most persuasive of all salesmen, is the

tape.

The speculator’s deadly enemies are: Ignorance, greed, fear and hope. All the statue books in the

world and all the rule books on all the Exchanges of the earth cannot eliminate these from the

human animal.

On Pat Hearne - He made money in stocks, and that made people ask him for advice. He would

never give any. If they asked him point-blank for his opinion about the wisdom of their commitments

he used a favorite race-track maxim of his: “You can’t tell till you bet.” He traded in our office. He

would buy one hundred shares of some active stock and when, or if, it went up 1 percent, he would

buy another hundred. On another points advance, another hundred shares; and so on. He used to

say that he wasn’t playing the game to make money for others and therefore would put in a stoploss

order one point below the price of his last purchase. When the price kept going up he simply

moved up his stop with it. On a 1 percent reaction he was stopped out. He declared he did not see

any sense in losing more than one point, whether it came out of his original margin or out of his

paper profits.

You know, a professional gambler is not looking for long shots, but for sure money. Of course, long

shots are fine when they come in. In the stock market Pat wasn’t after tips or playing to catch

twenty-points-a-week advances, but sure money in sufficient quantity to provide him with a good

sense of living. Of all the thousands of outsiders I have run across in Wall Street, Pat Hearne was

the only one who saw in stock speculation merely a game of chance like faro or roulette, but

nevertheless had the sense to stick to a relatively sound betting method.

After Pat Hearne’s death one of our customers who had always traded with Pat and used his system

made over a hundred thousand dollars in Luckawana. Then he switched over to some other stock

and because he had made a big stake he thought he need not stick to Pat’s way. When a reaction

came, instead of cutting his losses he let them run – as though they were profits. Of course every

cent went. When he finally quit he owed us several thousand dollars.

And he was right.
I sometimes think that speculation must be an unnatural sort of business,

because I find that the average speculator has arrayed against his own nature. The

weaknesses that all men are prone to are fatal to success in speculation – usually those very

weaknesses that make him likable to his fellows
or that he himself particularly guards against in

those other ventures of his where they are not nearly so dangerous as when he is trading in

commodities or stocks.

The public ought always to keep in mind the elementals of stock trading. When a stock is going up

no elaborate explanation is needed as to why it is going up. It takes continuous buying to make a

stock keep going up. As long as it does so, with only small and natural reactions from time to time,

it is a pretty safe proposition to trail with it.

But if after a long steady rise a stock turns and gradually begins to go down, with only occasionally

small rallies, it is obvious that the line of least resistance has changed from upward to downward.

Such being the case why should anyone ask for explanations? There are probably very good

reasons why it should go down.

After spending many years in Wall Street and after making and losing millions of dollars I

want to tell you this: It never was my thinking that made the big money for me. It always was

my sitting.

There is only one side of the market and it is not the bull side or the bear side, but the right side.

When I'm bearish and I sell a stock, each sale must be at a lower level than the previous sale. When

I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stocks on a scale

down, I buy on a scale up.

The price pattern reminds you that every movement of importance is but a repetition of similar price

movements, that just as soon as you can familiarize yourself with the actions of the past, you will be

able to anticipate and act correctly and profitably upon forthcoming movements.

The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be

told specifically which particular stock to buy or sell. He wants to get something for nothing. He does

not wish to work. He doesn’t even wish to have to think.

I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any

particular stock. In a bear market all stocks go down and in a bull market they go up.

For years I had been the victim of an unfortunate combination of inexperience, youth and insufficient

capital.

A speculator must not be a student. He must be both a student and a speculator.

In a speculator such an attitude (wishful thinking) is fatal.

A man must study general conditions, to seize them so as to be able to anticipate probabilities.

The message of the tape is same. That will be perfectly plain to anyone who will take the trouble to

think. He will find if he asks himself questions and considers conditions, that the answers will supply

themselves directly.

The public is so often whipsawed that one marvels at their persistence in not learning their lesson

In a narrow market, when prices are not getting anywhere to speak of but move within a

narrow range, there is no sense in trying to anticipate what the next big movement is going

to be. The thing to do is to watch the market, read the tape to determine the limits of the getnowhere

prices, and make up your mind that you will not take an interest until the prices

breaks through the limit in either direction
.

Do you wish to gamble blindly in the hope of getting a great big profit or do you wish to speculate

intelligently and get a smaller but much more probable profit?

It would not be so difficult to make money if a trader always stuck to his speculative guns.

It always pays a man to be right at the right time.

Professional traders have always had some system or other based upon their experience and

governed either by their attitude towards speculation or by their desires.

A man may beat a stock or a group at a certain time, but no man living can beat the stock

market!

It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to

the urgings of a magnetic personality when plausibly expressed by a brilliant mind
.

A man must know himself thoroughly if he is going to make a good job out of trading in the

speculative markets
.

Wall Street is always the same: only the pockets change.

When the market goes against you, you hope that every day will be the last day - and you

lose more than you should had you not listened to hope. And when the market goes your

way, you become fearful that the next day will take away your profit and you get out - too

soon. The successful trader has to fight these two deep-seated instincts.

Throughout all my years of investing I've found that the big money was never made in the

buying or the selling. The big money was made in the waiting.

Markets are never wrong, opinions are.

The game of speculation is the most uniformly fascinating game in the world. But it is not a

game for the stupid, the mentally lazy, the person of inferior emotional balance, or the getrich-

quick adventurer. They will die poor
.

Don't take action with a trade until the market, itself, confirms your opinion. Being a little late in a

trade is insurance that your opinion is correct. In other words, don't be an impatient trader.

It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses.

Let this thought be written indelibly upon your mind.

Remember this: When you are doing nothing, those speculators who feel they must trade day in and

day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.

When a margin call reaches you, close your account.
Never meet a margin call. You are on the

wrong side of a market. Why send good money after bad? Keep that good money for another

day
.

Successful traders always follow the line of least resistance. Follow the trend. The trend is your

friend.

A prudent speculator never argues with the tape.

Few people succeed in the market because they have no patience. They have a strong desire to get

rich quickly.

I absolutely believe that price movement patterns are being repeated. They are recurring

patterns that appear over and over, with slight variations. This is because markets are driven

by humans -- and human nature never changes
.

When you make a trade, "
you should have a clear target where to sell if the market moves

against you
. And you must obey your rules! Never sustain a loss of more than 10% of your capital.

Losses are twice as expensive to make up. I always established a stop before making a trade."

I am fully aware that of the millions of people who speculate in the markets, few people spend full

time involved in the art of speculation. Yet, as far as I'm concerned it is a full-time job -- perhaps

even more than a job. Perhaps it is a vocation, where many are called but few are singled out for

success.

The big money is made by the sittin' and the waitin' – not the thinking
. Wait until all the factors

are in your favor before making the trade."


Thursday, March 15, 2012

We are on the verge of another great move

Martin Armstrong-

We are on the verge of another great move. Cash is at record highs everywhere. A crash is only possible when the majority is long and invested. This condition does not exist. Additionally, there is a vast reservoir of cash sitting in government debt that will begin to shift away from
PUBLIC assets and back into the PRIVATE asset world. There is a time and place for everything. Right now, the USA is spending about $4 billion per week in interest. That will rise to $10 billion by the top of the Economic Confidence Model and then rise to $15 billion by the next low 4.3 years later ASSUMING no change in interest rates, which is not plausible. The precious metals still have not broken out and have not showing any sign of doing so just yet. We may see that decline at first with the exponential rally pushed off into 2017.

Tuesday, February 14, 2012

Iran and the Jasmine Revolution

Here Comes the Next Peace Dividend

When communications between intelligence agencies suddenly spike, as has recently been the case, I sit up and take note. Hey, do you think I talk to all of those generals because I like their snappy uniforms, do you?
The word is that the despotic, authoritarian regime in Syria is on the verge of collapse, and is unlikely to survive more than a few more months. The body count is mounting, and the only question now is whether Bashar al-Assad will flee to an undisclosed African country or get dragged out of a storm drain to take a bullet in his head. It couldn’t happen to a nicer guy.
The geopolitical implications for the US are enormous. With Syria gone, Iran will be the last rogue state hostile to the US in the Middle East, and it is teetering. The next and final domino of the Arab spring falls squarely at the gates of Tehran.
Remember that the first real revolution in the region was the street uprising there in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards. The true death toll will never be known, but is thought to be in the thousands. The antigovernment sentiments that provided the spark never went away and they continue to percolate just under the surface.
At the end of the day, the majority of the Persian population wants to join the tide of globalization. They want to buy IPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all. Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have failed to cater to these desires
When Syria collapses, the Iranian “street” will figure out that if they spill enough of their own blood that regime change is possible and the revolution there will reignite. The Obama administration is now pulling out all the stops to accelerate the process. Secretary of State Hillary Clinton has stiffened her rhetoric and worked tirelessly behind the scenes to bring about the collapse of the Iranian economy.
The oil embargo she organized is steadily tightening the noose, with heating oil and gasoline becoming hard to obtain. Yes, Russia and China are doing what they can to slow the process, but conducting international trade through the back door is expensive, and prices are rocketing. The unemployment rate is 25%. Iranian banks are about to get kicked out of the SWIFT international settlements system, which would be a death blow to their trade.
Let’s see how docile these people remain when the air conditioning quits running this summer because of power shortages. Iran is a rotten piece of fruit ready to fall of its own accord and go splat. Hillary is doing everything she can to shake the tree. No military action of any kind is required on America’s part.
The geopolitical payoff of such an event for the US would be almost incalculable. A successful revolution will almost certainly produce a secular, pro-Western regime whose first priority will be to rejoin the international community and use its oil wealth to rebuild an economy now in tatters.
Oil will lose its risk premium, now believed by the oil industry to be $30 a barrel. A looming supply could cause prices to drop to as low as $30 a barrel. This would amount to a gigantic tax $1.66 trillion tax cut for not just the US, but the entire global economy as well (87 million barrels a day X 365 days a year X $100 dollars a barrel X 50%). Almost all funding of terrorist organizations will immediately dry up. I might point out here that this has always been the oil industry’s worst nightmare.
At that point, the US will be without enemies, save for North Korea, and even the Hermit Kingdom could change with a new leader in place. A long Pax Americana will settle over the planet.
The implications for the financial markets will be enormous. The US will reap a peace dividend as large or larger than the one we enjoyed after the fall of the Soviet Union in 1992. As you may recall, that black swan caused the Dow Average to soar from 2,000 to 10,000 in less than eight years, also partly fueled by the technology boom. A collapse in oil imports will cause the US dollar to rocket. An immediate halving of our defense spending to $400 billion or less and burgeoning new tax revenues would cause the budget deficit to collapse. With the US government gone as a major new borrower, interest rates across the yield curve will fall further.
A peace dividend will also cause US GDP growth to reaccelerate from 2% to 4%. Risk assets of every description will soar to multiples of their current levels, including stocks, bonds, commodities, precious metals, and food. The Dow will soar to 20,000, the Euro collapses to parity, gold rockets to $2,300 and ounce, silver flies to $100 an ounce, copper leaps to $6 a pound, and corn recovers $8 a bushel. The 60 bull market in bonds ends.
Some 1.5 million of the armed forces will get dumped on the job market as our manpower requirements shrink to peacetime levels. But a strong economy should be able to soak these well trained and motivated people right up. We will enter a new Golden Age, not just at home, but for civilization as a whole.
Wait, you ask, what if Iran develops an atomic bomb and holds the US at bay? Don’t worry. There is no Iranian nuclear device. There is no Iranian nuclear program. The entire concept is an invention of American intelligence agencies as a means to put pressure on the regime. The head of the miniscule effort they have was assassinated by Israeli intelligence two weeks ago (a magnetic bomb, placed on a moving car, by a team on a motorcycle, nice!).
If Iran had anything substantial in the works, the Israeli planes would have taken off a long time ago. There is no plan to close the Straits of Hormuz, either. The training exercises we have seen are done for CNN’s benefit, and comprise no credible threat.
I am a firm believer in the wisdom of markets, and that the marketplace becomes aware of major history changing events well before we mere individual mortals do. The Dow began a 25 year bull market the day after American forces defeated the Japanese in the Battle of Midway in May of 1942, even though the true outcome of that confrontation was kept top secret for years.
If the collapse of Iran was going to lead to a global multi decade economic boom and the end of history, how would the stock markets behave now? They would rise virtually every day, led by the technology sector and banks, offering no pullbacks for latecomers to get in. That is exactly what they have been doing since mid-December. If you think I’m “Mad”, just check out Apple’s chart below, and the big relative underperformance of oil.